ACCT Week 3 Homework
E6-5 (Computation of Present Value) Using the appropriate interest table, compute the present values of the periodic amounts, shown on page 344, due at the end of the designated periods.
(a) $50,000 receivable at the end of each period for 8 periods compounded at 12%.
50,000* 4.9676= $248,380
(b) $50,000 payments to be made at the end of each period for 16 periods at 9%.
50,000* 8.3126= $415,630
(c) $50,000 payable at the end of the seventh, eighth, ninth, and tenth periods at 12%.
50,000* (5.6502-4.1114)= 75,940
Top of Form
E6-12 (Analysis of Alternatives) Brubaker Inc., a manufacturer of high-sugar, low-sodium, low-cholesterol frozen dinners, would like to increase its market share in the Sunbelt. In order to do so, Brubaker has decided to locate a new factory in the Panama City, Florida, area. Brubaker will either buy or lease a site depending upon which is more advantageous. The site location committee has narrowed down the available sites to the following three buildings.
Building A: Purchase for a cash price of $610,000, useful life 25 years.
PV= 610,000
Building B: Lease for 25 years with annual lease payments of $70,000 being made at the beginning of the year.
70,000*8.7843= 614,901
Building C: Purchase for $650,000 cash. This building is larger than needed; however, the excess space can be sublet for 25 years at a net annual rental of $6,000. Rental payments will be received at the end of each year. Brubaker Inc. has no aversion to being a landlord.
6,000*7.8431 = 47,058.60
Cash purchase price ……………………..650,000
PV of rental income…………….………(47,058.60)
Net PV …………………………….…….602,941.40
Instructions
In which building would you recommend that Brubaker Inc. locate, assuming a 12% cost of funds? Building C because it PV is the smallest
E7-2 (Determine Cash Balance) Presented below are a number of independent situations.
Instructions
For each individual situation, determine the amount that should be reported as cash. If the item(s) is
(a) $50,000 receivable at the end of each period for 8 periods compounded at 12%.
50,000* 4.9676= $248,380
(b) $50,000 payments to be made at the end of each period for 16 periods at 9%.
50,000* 8.3126= $415,630
(c) $50,000 payable at the end of the seventh, eighth, ninth, and tenth periods at 12%.
50,000* (5.6502-4.1114)= 75,940
Top of Form
E6-12 (Analysis of Alternatives) Brubaker Inc., a manufacturer of high-sugar, low-sodium, low-cholesterol frozen dinners, would like to increase its market share in the Sunbelt. In order to do so, Brubaker has decided to locate a new factory in the Panama City, Florida, area. Brubaker will either buy or lease a site depending upon which is more advantageous. The site location committee has narrowed down the available sites to the following three buildings.
Building A: Purchase for a cash price of $610,000, useful life 25 years.
PV= 610,000
Building B: Lease for 25 years with annual lease payments of $70,000 being made at the beginning of the year.
70,000*8.7843= 614,901
Building C: Purchase for $650,000 cash. This building is larger than needed; however, the excess space can be sublet for 25 years at a net annual rental of $6,000. Rental payments will be received at the end of each year. Brubaker Inc. has no aversion to being a landlord.
6,000*7.8431 = 47,058.60
Cash purchase price ……………………..650,000
PV of rental income…………….………(47,058.60)
Net PV …………………………….…….602,941.40
Instructions
In which building would you recommend that Brubaker Inc. locate, assuming a 12% cost of funds? Building C because it PV is the smallest
E7-2 (Determine Cash Balance) Presented below are a number of independent situations.
Instructions
For each individual situation, determine the amount that should be reported as cash. If the item(s) is